Portugal’s doubtful Chinese bailout

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Chinese firms are back in the running for control of Portuguese banking. The two sides are more used to doing business now – and the sellers are even more desperate for capital.

The resurgence of Chinese investment in Portugal – this time in the big commercial banks – comes at a time when some European, and particularly Portuguese, lenders are on their knees. 

In late November, leveraged Chinese conglomerate Fosun International announced a purchase making it the biggest shareholder in Banco Commercial Portugues (BCP), overtaking Angola’s national oil company, Sonangol. As this edition of Euromoney went to press, China Minsheng Financial and US private equity firm Lone Star were reportedly the frontrunners in the central bank’s auction of Banco Espírito Santo’s bridge bank, Novo Banco.

It is a year and a half since Fosun and Beijing-based insurer Anbang were bidders in the previous, aborted auction of Novo Banco. At the time, bankers said local regulators were concerned about the creation of Chinese successors to the Espírito Santo group’s bloated industrial and financial network in Portugal. Fosun has already bought the insurance arm of Caixa Geral de Depósitos, as well as the former healthcare business of the Espírito Santo group. 

The sale of Novo Banco will almost certainly come at a loss to the €4.9 billion 2014 bailout, so banks were relieved to know late in 2016 that their obligatory repayment of the rescue will be in annual instalments, not a lump sum. However, Novo Banco could still cause them headaches if it cannot find a buyer. 

Buffer

Meanwhile, if BCP’s private placement has given a 16.7% stake to Fosun, the bank’s value is so low Fosun only needed to inject €175 million. The investment gives BCP, at best, a little more buffer as it approaches a June deadline to repay €750 million of contingent convertible (CoCo) bonds received by the state in 2012. 

More hopefully for BCP, Fosun says it will hold onto its 16.7% stake for at least three years and might increase its shareholding to 30%. BCP’s shares rallied on the news, bringing cheer to big BCP shareholders with their own problems like Sonangol, Spain’s Banco Sabadell and Portuguese utility EDP.

Fosun is probably not the ECB’s preferred candidate for the owner of Portugal’s biggest listed bank. Chairman Guo Guangchang has promoted his use of the so-called float from his insurance companies to buy into other corporations; some worry he will take the same approach at BCP. 

Chinese investment in Portugal, it seems, is no more the ideal cure-all for the local banking sector’s troubles than its Angolan predecessor. Fosun has never owned a commercial bank anywhere in the world. 

But if they have tried to resist it in the past, European regulators may now be less fussy about the expertise and financial standing of those who buy into their banks – in Portugal or in Italy.